Trading transparency tug-of-war

Prime brokerage is one of the few lucrative businesses on Wall Street right now, but it forces firms to bear significant credit and reputational risks. To avoid the fallout from hedge fund blow-ups, prime brokers are scrambling for ways to better monitor their clients’ activities. Paul Lyon reports

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Prime brokers face an information conundrum. To attract hedge fund business, they pledge to uphold the highest standards of client confidentiality. But hedge funds spread business among a number of brokers anyway, effectively keeping their margining limits hidden. So how can prime brokers get the information they need to risk-manage their relationships with these clients?

A prime broker may try to extrapolate a client’s strategy from the business it sees, but there is no way to tell if the

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